BIG MAC Index in ETFs

Although the validity of the Big Mac index in determine the value of currency’s in the real world is suspect, it is still an intriguing idea nonetheless.  The Economist’s Big Mac index is based on the theory of purchasing-power parity (PPP). Exchange rates should equalize the price of a basket of goods in different countries.

The index shows which countries currency’s are under and overvalued.  The most overvalued currency according to the index is the Norwegian Kroner, which is almost 100% above its PPP rate.  The most undervalued currency according to the index is the Chinese Yuan, unvervalued by almost 50%.  We thought it would be interested to take track the performace on the Big Mac Index by through currency ETFs. BIG MAC INDEX RETURNS. Unfortunately, there are not ETFs for all of the currencies on this list, but we chose the following:

LONG undervalued BIG MAC currencies:

CNY  Market Vectors Chinese Renminbi USD ETNs

XRU  Currency Shares Russian Ruble Trust

SZR WisdomTree Dreyfus South African Rand Fund

FXM  Rydex Mexican Peso Trust

SHORT overvalued BIG MAC currencies:

FXF  Rydex Swiss Franc Trust

EUO  ProShares UltraShort Euro (long this index)

FXA  Rydex Australian Dollar Trust

Disclosure: No Positions

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